What changed in this filing

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Item 1A. Risk Factors

2022-02-16 compared with 2021-02-10 · 72 added, 102 removed, 369 unchanged (32% of the section changed)

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There can be no assurance that our tenants will have sufficient assets, income and financing to enable them to satisfy their contractual lease payment or indemnification obligations.

Ensign leases or provides a guaranty for a significant portion of our properties.

As of December 31, 2020, properties leased to Ensign under all Ensign leases represe nted $57.2 million, or 33%, o f our rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $7.8 million, or 5% , of our rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.

Ensign leases or provides a guaranty f or a significant portion of our properties.

As of December 31, 2021, properties leased to Ensign represented $63.5 million, or 33%, of total annualized contractual rental income, and properties leased to Pennant under the Pennant Master Lease for which Ensign provides a guaranty (the “Pennant Guaranty”) represented $8.0 million, or 4%, of our rental income, exclusive of operating expense reimbursements, on an annualized run-rate basis.

Ensign’s inability or unwillingness to meet its lease obligations or its obligations pursuant to the Pennant Guaranty could materially adversely affect our business, financial position or results of operations.

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These outbreaks have affected not only the residents, but also the health care providers and visitors to these facilities.

The COVID-19 pandemic has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread.

These measures impose restrictions on movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

Although some of these restrictions have been lifted or scaled back, resurgences of COVID-19 and the emergence of more readily transmissible variants have resulted in the re-imposition of certain restrictions and may lead to other restrictions being implemented.

Recently, two COVID-19 vaccines were approved for full use.

While the supply of COVID-19 vaccine in the United States is currently limited, states have generally prioritized residents of long-term care facilities, health care providers, and, increasingly, people 65 and older to receive the vaccine.

However, distribution of the vaccine has taken longer than expected due to logistics, lack of resources, scheduling, staffing issues and vaccine resistance, and availability is expected to remain scarce for the next several months, even as newer, more contagious variants of COVID-19 circulate worldwide.

To meet these challenges, the Biden administration has announced a vaccine offensive plan that calls for greatly expanding access to the vaccine and using the Defense Production Act to expand vaccine production.

Experts do not know how long immunity lasts after vaccination or exactly what percentage of the population would need to be vaccinated to achieve herd (or population)

immunity to COVID-19.

The Biden administration also proposed a $1.9 trillion spending package to combat the economic downturn and the pandemic, including $20 billion for a national vaccine program.

At this time, it is uncertain whether any such proposal will ultimately become law and we cannot predict the ultimate content, timing or effect of any such legislation or the impact of potential legislation on our business.

The COVID-19 pandemic led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to reduce its spread.

These measures imposed restrictions on movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders.

Although most of these restrictions have been lifted or scaled back, resurgences of COVID-19 and the emergence of new variants thereof have resulted in the re-imposition of certain restrictions and requirements, including restrictions imposed on unvaccinated individuals and employee vaccine mandates, and may lead to other restrictions being implemented in response to efforts to reduce the spread of COVID-19.

Given the adverse impact the pandemic and pandemic-related restrictions have had, and may continue to have, on the economy generally and the prevalence of outbreaks within long-term care facilities, our business, results of operations and financial condi tion have been adversely impacted, and may in the future be materially adversely impacted, by the COVID-19 pandemic.

The COVID-19 pandemic and measures to prevent its spread subject us to various risks and uncertainties, some of which have adversely affected our business, and all of which could materially adversely affect our business, results of operations and financial condition, including the following:

• the inability of our tenants to pay contractual rent in full, on a timely basis or at all due to increases in operating costs incurred by our tenants or declines in occupancy rates at their facilities, which would adversely impact our rental income, and the adverse impact on our rental income if we grant rent deferrals, reductions or other restructurings or accommodations to any of our tenants;

• the inability of our tenants to pay contractual rent in full, on a timely basis or at all due to increases in operating costs incurred by our tenants or declines in occupancy rates at their facilities, which has adversely impacted and may continue to adversely impact our rental income, and the adverse impact on our rental income when we grant rent deferrals, reductions or other restructurings or accommodations to any of our tenants;

• the possibility that we may be required to write-off unpaid rental payments, incur lease accounting charges due to the uncollectibility of rental payments and/or accede to unfavorable modifications of lease terms if a tenant is unable to pay contractual rent;

and/or the possibility that adverse market conditions or declines in the operating performance of our tenants or borrowers may result in asset impairment charges or credit losses on our loans receivable if we determine that the full amount of our investments are not recoverable;

• the financial deterioration of one or more of our tenants or borrowers (which has, and could continue to result from, among other reasons (i) temporary cessation or limitations on certain medical procedures which in turn results in a reduction in hospital patients and the need for post-acute care services offered by our tenants, (ii) increased operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (iii) increased scrutiny by regulators of infection control and prevention measures, (iv) potential repayments of relief funds received by tenants as changes in federal guidelines are published and potential false claims act and whistleblower liability for violations of relief fund terms and conditions, (v) nursing or other staffing shortages exacerbated by the pandemic;

or (vi) decisions by elderly individuals to avoid or delay entrance into assisted living and other long-term care facilities in order to minimize their potential for exposure to COVID-19 in group living situations), which may result in such tenant(s) experiencing insolvency or initiating bankruptcy or similar proceedings which adversely affect our ability to collect rent or interest payments from such tenants and result in increased costs to us ;

• increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently-leased properties to another tenant or operator, which have, and may continue to, adversely impact our revenues and results of operations ;

• the financial deterioration of one or more of our tenants or borrowers (which has, and could continue to result from, among other reasons (i) increased operating costs and staffing requirements related to compliance with Centers for Disease Control and Prevention (“CDC”) protocols, (ii) increased scrutiny by regulators of infection control and prevention measures, (iii) potential repayments of relief funds received by tenants as changes in federal guidelines are published and potential false claims act and whistleblower liability for violations of relief fund terms and conditions, (iv) nursing or other staffing shortages exacerbated by the pandemic, including due to vaccine mandates imposed on such nursing or other staff;

or (v) decisions by elderly individuals to avoid or delay entrance into assisted living and other long-term care facilities in order to minimize their potential for exposure to COVID-19 in group living situations), which may result in such tenant(s) experiencing insolvency or initiating bankruptcy or similar proceedings which adversely affect our ability to collect rent or interest payments from such tenants and result in increased costs to us ;

• increased costs or delays that we have incurred, and may continue to incur, if we need to reposition or transition any of our currently-leased properties to another tenant or operator, which have adversely impacted, and may continue to adversely impact, our revenues and results of operations ;

• risks related to lawsuits and regulatory enforcement actions related to COVID-19 outbreaks involving us, our tenants, operators or borrowers, including increases in the costs of business, negative publicity and/or further decreases in occupancy and/or profitability at our facilities (we note, however, that liability protections provided to health care providers under the PREP Act, as summarized below, may reduce the risk of legal liability for certain actions taken by our operators in connection with the COVID-19 pandemic);

• deterioration of state and local economic conditions and job losses, which has, and may continue to, decrease demand for and occupancy levels of our properties and cause our rental rates and property values to be negatively impacted;

• possible complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives, which may intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;

• complete or partial closures of, or other operational issues at, one or more of our properties resulting from government actions or directives, which may intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;

• material increases in COVID-19 related claims and litigation against nursing home and seniors housing operators (whether by residents, employees, contractors, suppliers, etc.) causing their insurance coverage to increase to levels which could negatively impact their financial performance and ability to meet their contractual lease obligations to us;

• limitations on our access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings or refinancings or other forms of capital raising, including issuances under our New ATM Program (as defined below), and which could adversely impact our ability to make new property investments;

• limitations on our access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings or refinancings or other forms of capital raising, including issuances under our ATM Program (as defined below), and which could adversely impact our ability to make new property investments;

• our ability to continue to make cash distributions to our stockholders commensurate with historical levels;

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A declaration lasts until the HHS Secretary declares that the public health emergency no longer exists or upon the expiration of the 90-day period beginning on the date that the HHS Secretary declared a public health emergency exists, whichever occurs first.

The HHS Secretary has renewed this declaration multiple times, and is currently set to be in force through April 2021.

The PREP Act is intended to protect health care providers, including many of our tenants, operators or borrowers, from liability for using or administering medical devices or medications that have been sanctioned on some level, even if not formally approved by the United States Food and Drug Administration or CDC.

The HHS Secretary has renewed this declaration multiple times, and it is currently set to be in force through April 16, 2022.

T he PREP Act is intended to protect health care providers, including many of our tenants, operators or borrowers, from liability for using or administering medical devices or medications that have been sanctioned on some level, even if not formally approved by the United States Food and Drug Administration or CDC.

The PREP Act is especially important for our tenants that want to offer treatment options to their residents who test positive for COVID-19.

If courts do not enforce the provisions of the PREP Act to provide liability immunity for certain health care providers, such as nursing home and seniors housing operators, or if the Biden administration scales back or rescinds any previous declarations to invoke the PREP Act, our tenants, operators or borrowers, the financial performance of our tenants, operators or borrowers and ability to meet their contractual obligations to us could be adversely affected.

The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at th is time, including new information which may emerge concerning the severity of COVID-19 and the current and future variants thereof, actions taken to contain COVID-19, resurgences of COVID-19 that may continue to occur, the efficacy of COVID-19 vaccines and how quickly and to what extent normal economic and operating conditions resume.

or rescinds any previous declarations to invoke the PREP Act, our tenants, operators or borrowers, the financial performance of our tenants, operators or borrowers and ability to meet their contractual obligations to us could be adversely affected.

The duration and extent of the COVID-19 pandemic’s effect on our operational and financial performance, and the operational and financial performance of our tenants, will depend on future developments, which are highly uncertain and cannot be predicted at th is time, including the rate of public acceptance and usage of vaccines and the effectiveness of vaccines in limiting the spread of COVID-19 and its variants, resurgences of COVID-19 and, in particular, new and more contagious and/or vaccine resistant variants, actions taken to contain the spread of COVID-19 and how quickly and to what extent normal economic and operating conditions can resume.

Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business, financial condition, results of operations, and prospects as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.

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If a tenant is unable to comply with the terms of its lease, we may be forced to write off unpaid amounts due to us from the tenant, move to a cash basis method of accounting for recognizing rental income from the tenant or otherwise modify the tenant’s lease in ways that are unfavorable to us.

Alternatively, failure of a tenant to perform under a lease could require us to declare a default, repossess the property, find a suitable replacement tenant, hire third-party managers to operate the property or

sell the property.

See Note 2, Summary of Significant Accounting Policies and Note 3, Real Estate Investments, Net for further information.

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If our tenants terminate or do not renew their leases with us, we would attempt to reposition the properties with another tenant or operator.

Rental payments on such properties could decline or cease altogether while we reposition the properties with a suitable replacement tenant or operator and we may be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, such properties while they are being repositioned.

taxes, debt costs and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, such properties while they are being repositioned.

Healthcare facilities are typically highly customized and may not be easily adapted to non-healthcare-related uses.

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In addition, we may fail to identify suitable replacements or enter into leases or other arrangements with new tenants or operators on a timely basis or on terms as favorable to us as our current leases, if at all.

If we experience a significant number of un-leased properties due to the inability to find suitable replacement tenants or successfully reposition the property, our operating expenses could increase significantly.

If we experience a significant number of properties not under a lease due to the inability to find suitable replacement tenants or successfully reposition the property, our operating expenses could increase significantly.

Even after a suitable replacement tenant or operator has taken over operation of a property, it may still take an extended period of time before such property is fully repositioned and value restored, if at all.

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In addition, to the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.

Should the impact of climate change be

material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.

Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.

In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.

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Our use of joint ventures may be subject to risks that may not be present with other ownership methods.

Our joint ventures may involve property development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.

Our joint ventures may involve property

development, which presents additional risks that could render a development project less profitable or not profitable at all and, under certain circumstances, may prevent completion of development activities once undertaken.

If we cannot identify and purchase a sufficient quantity of suitable properties at favorable prices or if we are unable to finance acquisitions on commercially favorable terms, or at all, our business, financial position or results of operations could be materially and adversely affected.

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In addition, our tenants face an increasingly competitive labor market for skilled management personnel and nurses together with Medicaid reimbursement in some states that does not cover the full cost of caring for residents.

Significant turnover, or a shortage of nurses or other trained personnel or general inflationary pressures on wages, may force tenants to enhance pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contract personnel, but they be unable to offset these added costs by increasing the rates charged to residents.

Significant turnover, or a shortage of nurses or other trained personnel or general inflationary pressures on wages, may force tenants to enhance pay and benefits packages to compete effectively for skilled personnel, or to use more expensive contract personnel, but they may be unable to offset these added costs by increasing the rates charged to residents.

Any increase in labor costs and other property operating expenses or any failure by our tenants to attract and retain qualified personnel could reduce the revenues of our tenants and their ability to meet their obligations to us.

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Our tenants that operate SNFs and other healthcare facilities must be licensed under applicable state law and, depending upon the type of facility, certified or approved as providers under the Medicare and/or Medicaid programs.

certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership.

Prior to the transfer of the operations of such healthcare properties to successor operators, the new operator generally must become licensed under state law and, in certain states, receive change of ownership approvals under certificate of need laws (which provide for a certification that the state has made a determination that a need exists for the beds located on the property) and, if applicable, file for a Medicare and Medicaid change of ownership.

Upon termination or expiration of existing leases, delays or the failure of the new tenant in receiving regulatory approvals from the applicable federal, state or local government agencies, may prolong the period during which we are unable to collect rent and the property may experience performance declines.

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If one of our tenants experiences such a loss, it may be unable to satisfy its lease payment obligations to us.

The ownership by our chief executive officer, Gregory K.

Stapley, of shares of Ensign and Pennant common stock may create, or may create the appearance of, conflicts of interest.

Because of his former position with Ensign, our chief executive officer, Gregory K.

Stapley, owns shares of Ensign common stock.

Stapley also owns shares of our common stock.

In 2019, in connection with the Pennant Spin, each holder of Ensign common stock received one half share of Pennant common stock per share of Ensign common stock.

As a result, Mr.

Stapley now also owns shares of Pennant common stock.

His individual holdings of shares of our common stock, Ensign common stock and Pennant common stock may be significant compared to his respective total assets.

These equity interests may create, or appear to create, conflicts of interest when he is faced with decisions that may not benefit or affect CareTrust REIT, Ensign or Pennant in the same manner.

We are, and may continue to be, exposed to contingent rent escalators, which could hinder our profitability and growth.

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Legislative proposals are introduced each year that would introduce major changes in the healthcare system, both nationally and at the state level.

In light of the transfer of power from the Trump administration to the Biden administration, and the change in control of the United States Senate, we believe that efforts may be made to, among other things:

(i) repeal much of the deregulation and regulatory changes made to the PPACA during the previous

administration;

As demonstrated by the Democratic majority’s attempt to pass BBB, we believe that efforts may be made to, among other things:

(i) repeal much of the deregulation and regulatory changes made to the Affordable Care Act during the Trump administration;

(ii) expand health insurance coverage to more individuals, potentially by enacting legislation creating a single-payor health insurance model;

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Violations of such laws by an operator of a health care property could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from government healthcare programs, civil liability, and in certain limited instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action.

If we or our tenants fail to adhere to applicable privacy and security laws, or experience a security incident or breach, this could have a material adverse effect on us or on our tenants’ ability to meet their obligations to us .

We and our tenants are subject to HIPAA and various other state and federal laws that relate to privacy, security and the reporting of data breaches involving personal information as discussed in “Government Regulation, Licensing and Enforcement - Privacy, Security and Data Breach Notification Laws” in Item 1 of this Annual Report on Form 10-K.

If we or our tenants fail to adhere to applicable privacy and data security laws, or experience a data security incident or breach, this could have a material adverse effect on us or on our tenants’ ability to meet their obligations to us .

We and our tenants are subject to HIPAA and various other state and federal laws that relate to privacy and data security, including the reporting of data breaches involving personal information as discussed in “Government Regulation, Licensing and Enforcement - Privacy, Security and Data Breach Notification Laws” in Item 1 of this Annual Report on Form 10-K.

Failure to comply with these requirements could have a materially adverse effect on us and the ability of our tenants to meet their obligations to us.

Furthermore, the adoption of new privacy, security and data breach notification laws at the federal and state level could require us or our tenants to incur significant compliance costs.

While we and our tenants maintain various security controls, there is a risk of security incidents or breaches resulting from unintentional or deliberate acts by third parties or insiders attempting to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.

In addition, the cost and operational consequences of responding to cybersecurity incidents and breaches and implementing remediation measures could be significant.

While we and our tenants maintain various security controls, there is a risk of data security incidents or breaches resulting from unintentional or deliberate acts by third parties or insiders attempting to obtain unauthorized access to information, destroy or manipulate data, or disrupt or sabotage information systems.

The trend toward increased remote work and rapid implementation of telehealth within the health care industry in response to the pandemic may have created new or increased cyber risks.

Cyber-attacks range from individual attempts to gain unauthorized access to our IT systems to sophisticated attacks by hacking groups and some nation-state actors.

Cyber incidents range from individual attempts to gain unauthorized access to our IT systems to sophisticated attacks by hacking groups and nation-state actors.

Information technology systems are a vital part of the business of our Company and our tenants, and a security incident or breach could result in a material loss of business, business interruption, loss of patient or other critical data, regulatory enforcement, substantial legal liability and reputational harm.

Despite the deployment of commercially reasonable efforts and sophisticated techniques to prevent cyber-attacks, information systems remain potentially vulnerable because the techniques used by hackers continue to evolve and may not be identified until launched against a target, and may be designed not to be detected.

In fact, some cyber-attacks may not be detected for an extended period of time.

As a result, we or our tenants may be unsuccessful in implementing successful cybersecurity protections.

A successful cyber-attack, security incident or breach occurring at or involving the Company could have a material adverse impact on our Company.

Where the cyber-attack, incident or breach occurs at or involves a tenant, this could jeopardize the tenant’s ability to fulfill its obligations to us.

Despite the deployment of commercially reasonable efforts and sophisticated techniques to prevent cyber incidents, information systems remain potentially vulnerable because the techniques used by hackers continue to evolve and are designed not to be detected.

In fact, some unauthorized access may not be detected for an extended period of time.

As a result, we or our tenants may suffer cybersecurity incidents where we or our tenants have implemented cybersecurity protections.

A data security incident or breach occurring at or involving the Company could have a material adverse impact on our Company.

Where the data security incident or breach occurs at or involves a tenant, this could jeopardize the tenant’s ability to fulfill its obligations to us.

Tenants that fail to comply with federal, state and local licensure, certification and inspection laws and regulations may cease to operate our healthcare facilities or be unable to meet their financial and other contractual obligations to us.

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We elected to be taxed as a REIT for U.S.

federal income tax purposes

beginning with our taxable year ended December 31, 2014.

We received an opinion of our counsel with respect to our qualification as a REIT in connection with the Spin-Off.

federal income tax purposes beginning with our taxable year ended December 31, 2014.

We received an opinion of our counsel with respect to our qualification as a REIT in connection with becoming a public company.

Investors should be aware, however, that opinions of advisors are not binding on the IRS or any court.

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Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect our investors or us.

We cannot predict how changes in the tax laws, including any tax reform called for by the new presidential administration, might affect our investors or us.

We cannot predict how changes in the tax laws, including any tax reform called for by the current presidential administration, might affect our

investors or us.

New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT or the U.S.

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Rents received or accrued by us from our tenants will not be treated as qualifying rent for purposes of these requirements if the leases are not respected as true leases for U.S.

federal income tax purposes and are instead treated as service contracts, joint ventures or arrangement.

federal income tax purposes and are instead treated as service contracts, joint ventures or other arrangements.

If the leases are not respected as true leases for U.S.

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Dividends payable by REITs, however, generally are not eligible for the reduced rates.

designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S.

However, for taxable years beginning after December 31, 2017 and before January 1, 2026, under the recently enacted Tax Cuts and Jobs Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S.

federal income tax rate of 29.6% on such income.

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From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments.

If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid being subject to corporate income tax and the 4% excise tax in a particular year.

If we do not have other funds available in these situations, we could be required to borrow funds

on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid being subject to corporate income tax and the 4% excise tax in a particular year.

These alternatives could increase our costs or reduce our equity.

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As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS.

This could increase the cost of our hedging activities because the TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates

than we would otherwise want to bear.

This could increase the cost of our hedging activities because the TRS may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.

In addition, losses in the TRS will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.

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From time to time, we may have substantial indebtedness and we are able to incur significant additional indebtedness.

As of December 31, 2020, we had approximately $550.0 million of indebtedness, consisting of $300.0 million representing our 5.25% Senior Notes due 2025 (the “Notes”), $200.0 million under our unsecured term loan credit facility (the “Term Loan”) and $50.0 million in borrowings outstanding under our unsecured revolving credit facility (the “New Revolving Facility”).

As of December 31, 2021, we had approximately $680.0 million of indebtedness, consisting of $400.0 million representing our 3.875% Senior Notes due 2028 (the “Notes”), $200.0 million under our unsecured term loan credit facility (the “Term Loan”) and $80.0 million in borrowings outstanding under our unsecured revolving credit facility (the “Revolving Facility”).

High levels of indebtedness could have one or more of the following adverse consequences, among others:

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In addition, failure to satisfy our obligations under the Notes or our other debt or to comply with the financial and other restrictive covenants contained in the indenture governing the Notes or the Amended Credit Agreement (as defined below), could result in an event of default, which could result in all of our debt becoming immediately due and payable and permit certain of our lenders to foreclose on our assets securing such debt.

Further, our Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with certain financial covenants set forth in the Amended Credit Agreement and the indenture governing the Notes.

Further, our Amended Credit Agreement and the indenture governing the Notes permit us to incur substantial additional debt, including secured debt, subject to our compliance with

certain financial covenants set forth in the Amended Credit Agreement and the indenture governing the Notes.

See “Risk Factors - Risks Related to Our Capital Resources and Indebtedness - Covenants in our debt agreements restrict our activities and could adversely affect our business” for a summary of these covenants.

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We conduct our operations through subsidiaries and depend on our subsidiaries for the funds necessary to operate and repay our debt obligations, including funds transfers to us which are necessary to make the payments due under the Notes.

While all of our subsidiaries are currently guarantors of the Notes, under certain circumstances, one or more of our subsidiaries may be released from, or may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes.

The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by us and all of our existing and future subsidiaries (other than CTR Partnership, L.P.

and CareTrust Capital Corp.) that guarantee obligations under the Amended Credit Facility.

However, under certain circumstances, one or more of our subsidiaries may be released from, or may not be required to provide, a guarantee of the Notes, and in such circumstances, will not be responsible for any obligations with respect to the Notes.

Each of our subsidiaries is a distinct legal entity and has no obligation, contingent or otherwise, to transfer funds to us.

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engaging in non-healthcare related business activities;

creating restrictions on the ability of our subsidiaries to pay distributions

or other amounts to us;

creating restrictions on the ability of our subsidiaries to pay distributions or other amounts to us;

selling assets;

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Certain of our existing debt obligations require interest and related payments to vary with the movement of certain indices, and we may incur additional indebtedness in connection with new credit facilities or financing of acquisitions or development activities.

Increased interest rates would increase our interest costs for any new debt and our obligations under our New Revolving Facility and Term Loan, which could make acquisition financings more costly or lower our current period earnings.

Increased interest rates would increase our interest costs for any new debt and our obligations under our Revolving Facility and Term Loan, which could make acquisition financings more costly or lower our current period earnings.

Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing.

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In July 2017, the U.

K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

In the U.S., it is anticipated that publication of 1-week and 2-month U.S.

dollar LIBOR will end on December 31, 2021, with all other U.S.

dollar LIBOR tenors ceasing on June 30, 2023.

K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intended to phase out LIBOR by the end of 2021.

In the U.S., publication of 1-week and 2-month U.S.

dollar LIBOR ended on December 31, 2021, and all other U.S.

dollar LIBOR tenors will cease on June 30, 2023.

Federal Reserve has begun publishing a Secured Overnight Funding Rate (“SOFR”), which is intended to replace U.S.

dollar LIBOR, and has proposed a paced market transition plan to SOFR from LIBOR.

Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market rates, and SOFR over time may bear little or no relation to the historical actual or historical indicative data.

Organizations are currently working on industry wide and company specific transition plans as it relates to financial and other derivative contracts exposed to LIBOR.

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We cannot predict how markets will respond to these proposed alternative rates or the effect of any changes to LIBOR or the discontinuation of LIBOR.

However, if future rates based upon a successor reference rate such as SOFR (or a new method of calculating LIBOR) are higher than LIBOR rates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.

However, if future rates based upon a successor reference rate such as SOFR (or a new method of calculating LIBOR) are higher or more volatile than LIBOR rates as currently determined or if our lenders have increased costs due to changes in LIBOR, we may experience increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.

A credit rating downgrade could impair our ability to obtain additional deb t financing on favorable terms, if at all, and significantly reduce the trading price of our common stock.

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Our charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.

Our charter also provides that, unless exempted by the board of directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value of the outstanding shares of all classes or

series of our stock.

The constructive ownership rules are complex and may cause shares of stock owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity.

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(2) prohibit stockholders action by non-unanimous written consent;

(3) permit the board of directors, without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be issued;

(3) permit the board of directors, without further action of the

stockholders, to amend the charter to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that may be issued;

(4) permit the board of directors to classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares;

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We believe these provisions protect our stockholders from coercive or unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal.

These provisions are not intended to prevent all takeovers, but they may delay, defer or prevent a change of control transaction even if such transaction involves a premium price for our common stock or our stockholders it is in their best interests.

These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

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Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee, (iii) any action asserting a claim arising pursuant to any provision of the MGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine, and any of our record or beneficial stockholders who commences such an action shall cooperate in a request that the action be assigned to the Court’s Business & Technology Case Management Program.

This exclusive forum provision is intended to apply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act of

1934 or Securities Act of 1933, each as amended, or any other claim for which the federal courts have exclusive jurisdiction.

This exclusive forum provision is intended to apply to claims arising under the MGCL and would not apply to claims brought pursuant to the Exchange Act of 1934 or Securities Act of 1933, each as amended, or any other claim for which the federal courts have exclusive jurisdiction.

The exclusive forum provision in our bylaws will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.

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We rely on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential tenant and customer data, including financial account information.

Although we have taken steps to protect the security of our information systems, we have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks and it is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.

In addition, due to the fast pace and unpredictability of cyber threats, long-term implementation plans designed to address cybersecurity risks become obsolete quickly.

Security breaches, including physical or electronic break-ins, computer viruses, malware, works, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service attacks, impersonation of authorized users and similar breaches, can create system disruptions, shutdowns or result in a loss of company assets or unauthorized disclosure of confidential information.

The risk of security breaches has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased.

While we have taken steps to protect the security of our information systems, we have, from time to time, experienced cyber incidents of varying degrees, although none of these cyber incidents have had a material adverse impact on our business, financial condition or results of operations.

It is possible that in the future our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable or proprietary information and any such event could materially and adversely impact our business, financial condition or results of operations.

In addition, data security incidents could occur due to unintentional misconfiguration of data management tools and network security systems.

Due to the fast pace and unpredictability of cyber threats, measures for addressing cybersecurity risks may become obsolete quickly.

Security breaches, including physical or electronic break-ins, computer viruses, malware, phishing attacks, worms, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering (including through social engineering such as phishing attacks), coordinated denial-of-service attacks, impersonation of authorized users and similar incidents, can create system disruptions, shutdowns or result in a loss of company assets or unauthorized disclosure of confidential information.

The risk of security incidents has generally increased as the number, intensity and sophistication of attacks and intrusions from around the world have increased.

In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.

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For example, in the three months ended September 30, 2019, we recorded impairment charges of approximately $16.7 million, resulting in a net loss of $10.1 million for the quarter.

Such impairment charges may make it more difficult for us to meet the financial ratios in our Amended Credit Agreement and may reduce the borrowing base available to us under our Revolving Facility, which may reduce the amounts of cash we would otherwise have available to pay expenses, service other indebtedness and operate our business.

Environmental, social and governance matters may cause us to incur additional costs, make personnel changes, and affect the attractiveness of our stock to investors.

Shareholder, public and governmental expectations have been increasing with respect to corporate responsibility, sustainability, diversity and inclusion and related environmental, social and governance (collectively “ESG”) matters.

Shareholder advisory services and other organizations have developed and publish, and others may in the future develop and

publish, rating systems and other scoring and reporting mechanisms to evaluate and compare the ESG performance of our Company and others.

These ratings systems frequently change, and scores are often based on a relative ranking which may cause a company’s score to deteriorate if peer companies’ rankings improve.

Keeping up with such changes may divert management’s time and attention from other business priorities.

In addition, current shareholders and prospective investors may use these ratings and/or their own internal ESG benchmarks to determine whether and to what extent they may choose to invest in our securities, engage with us to advocate for improved ESG performance or disclosure, make voting decisions as shareholders, or take other actions to hold us and our board of directors accountable with respect to ESG matters.

Some legislatures, government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate, certain ESG disclosure or performance.

For example, board diversity and inclusion is an ESG topic that is receiving heightened attention from lawmakers and listing exchanges.

The State of California, where we currently maintain our principal executive offices, has enacted laws requiring companies to meet stated gender and diversity requirements on their boards of directors by specific deadlines.

In addition, the Nasdaq Stock Market LLC, where our common stock is currently listed, has filed a proposal with the SEC that, if approved, would require most Nasdaq-listed companies to meet specified board diversity requirements within a defined compliance period and face potential delisting if they do not explain any failure to meet the requirements.

If we are unable to recruit, attract and/or retain qualified members of our board of directors to maintain compliance with the diversity requirements of applicable mandates within the prescribed timelines, we could be exposed to costly fines and penalties.

We may also face reputational damage in the event our corporate responsibility initiatives or objectives, including with respect to board diversity, do not meet the standards or expectations of shareholders, prospective investors, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve acceptable ESG ratings from third party rating services.

Failure to comply with ESG-related laws, exchange policies or stakeholder expectations could materially and adversely impact the value of our stock and related cost of capital, and limit our ability to fund future growth.

Such impairment charges may reduce the borrowing base available to us under our Revolving Facility, which may reduce the amounts of cash we would otherwise have available to pay expenses, service other indebtedness and operate our business.

We cannot assure you of our ability to pay dividends in the future.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors